Today, because of land prices being so high, and in many cases also as a result of lifestyle choices, more and more people are buying air (condos are the legal subdivision of airspace) instead of land. I have always been a proponent of the theory that the best way to make money in real estate is to buy land. The reason: they aren't making any more (well actually sometimes they do but its rare) and it is therefore much more likely to go up in value. I always explain to clients that the more land you have, the better off you are-when you buy a condo, you get your allotted airspace but just a small portion of land. So your major asset is a depreciating one-the building depreciates with time just like a car or other asset usually will. Where you are buying a condo on leased land (or a house for that matter) the situation is, in my opinion, even worse! The land lease gets shorter every year-so, all things remaining equal, the value of that land will be lower (significant market increases and some other phenonmena can mask this) each year. This will be particularly obvious once the time left on the lease is less than the average home buyer lifetime. I always say when you buy on leased land you are buying a depreciating asset on a depreciating asset-which you wouldn't usually want to do. I always encourage people to spend most of their money on assets which generally appreciate (the freehold land) and less on the building (proportionally) if they are trying to make money in real estate.
Having said all of that, a lot of clients still either want, or can afford, to buy condos. The recent good news is that a study carried out by Genworth (one of the providers of mortgage insurance-along with CMHC) has concluded that there will continue to be a very high demand for condos and that the prices will keep climbing....so, at least in the short term, it may be possible for buyers to get into the market in a condo and still do fairly well in the profit department! I am still skeptical that significant gains can be made on condos in a normal market (the last 3-5 years has NOT been normal) when compared to the gains obtainable through land purchases but maybe I will be proven wrong!
Having said all of that, a lot of clients still either want, or can afford, to buy condos. The recent good news is that a study carried out by Genworth (one of the providers of mortgage insurance-along with CMHC) has concluded that there will continue to be a very high demand for condos and that the prices will keep climbing....so, at least in the short term, it may be possible for buyers to get into the market in a condo and still do fairly well in the profit department! I am still skeptical that significant gains can be made on condos in a normal market (the last 3-5 years has NOT been normal) when compared to the gains obtainable through land purchases but maybe I will be proven wrong!
